Does industrial air pollution drive health care expenditures? Spatial evidence from China

Abstract

The severe health damage and massive health costs associated with industrial air pollution have attracted global concern. A spatial lag model with decomposed direct and indirect spatial effects was used to estimate the impact of industrial air pollution on health care expenditures in Chinese provinces from 2002 to 2014. The control variables of health reform, GDP per capita, urbanization, aging, education level, and hospital supplies were considered. Moran's I index was applied to investigate the spatial agglomeration of health care expenditures. The spatial lag model with fixed effects provided the best fit to measure the effect of industrial air pollution on health care expenditures. The global Moran's I of provincial health care expenditures increased from 0.3988 in 2002 to 0.4554 in 2014. The estimated spatial lag coefficient of provincial health care expenditures was 0.188. The estimated direct and indirect effects of industrial air pollution on provincial health care expenditures were 0.032 and 0.0072, respectively. The direct effect of health reform on health care expenditures was −0.006. The results indicate that the strengthening spatial agglomeration of provincial health care expenditures is caused by the joint effect of industrial air pollution, health reform, and other socioeconomic factors. Industrial air pollution increases health care expenditures in the local and neighboring provinces. Most importantly, the effect of industrial air pollution outweighs the reduction effect of health reform on health care expenditures. The final remarks of this paper suggest three main measures to reduce industrial air pollution and its health costs.